Fractals of Change

What The $69 Million Smart Grid Grant Will Mean to Vermont

The nearly $69 million dollar stimulus award Vermont utilities received from the federal Department of Energy (DoE) this week will have a much greater and long lasting effect on the Green Mountain State than hundreds of millions of dollars in stimulus band aids that we are also receiving. When the supplemental Medicaid and educations dollars are gone, we will have bought some much-needed time but still have a huge budget hole to fill. When the utilities finish building a smart grid statewide in the next few years, Vermont will have a stronger economy, a better job market, a cleaner environment, better broadband, a lower cost of living, and a stronger tax base to support the cost of government services with lower tax rates than would otherwise be possible. Almost sounds to be too good to be true but it isn't – assuming we do a good job with this money and the additional $69 million of investor and ratepayer money with which the utilities will match the grant.

By the end of 2012 Vermont will be the first state in the nation with a smart grid stretching border to border and from almost every consumer, through the transmission network, and back to generating sources. It's likely that DoE awarded us more than 2% of the total amount of money in the nationwide pool precisely because our size allows us to complete the project quickly and because we submitted the only application in the country which included every electric utility in the state in a massive and ambitious collaboration. We did promise to make detailed reports available on what worked and what didn't to the rest of the country.

We would have eventually done all this work and paid the whole cost ourselves. The way we distribute electricity is antiquated and wasteful. We consumers have neither the information nor mechanism for adjusting our usage to avoid high cost peaks. Now we will sometimes actually be paid for avoiding peak use because that's cheaper for the utility than buying peak power on the spot market. Only businesses the size of IBM have been able to afford sophisticated ways to keep peak usage and bills low; now the smallest businesses in the state will be able to have pretty much the same control. We pay for and build transmission and generation capacity for anticipated peaks. The more we can avoid the peaks, the less we have to build. Mass adoption of plug-in cars is unthinkable with a dumb grid; it would just collapse when they are all plugged in at 6PM.

If we had done the job ourselves with the amount of money the utilities can prudently raised, it would take us eight years instead of the three years we plan with the addition of the federal grant. We'll be leaders and we'll make mistakes; that's part of what the federal money is paying us for. But we'll also get the benefits five years earlier and we'll lead rather than lag the nation in this crucial technology.

Our utilities took a chance in banding together for one big ask instead of applying for smaller amounts separately as most other utilities (which bothered to apply) did. Only 100 out of more than 400 applications got funded. The answer could have just been "no". But they did envision a fast lane to the future; they did work together; the Department of Public Service, The Office of Economic Stimulus and Recovery, and the state's Congressional Delegation and the Governor all strongly supported the application, which is an excellent and persuasive document. The Governor took me along on a visit to Vice President Biden, who advised us that a unified application was the best way to assure that a whole coordinated program got funded – but pointedly and properly couldn't assure us that it would be accepted.

And we got the grant, phew. Now we have to deliver.

Vermont’s Broadband Recommendations

Which broadband grant applicants does Vermont like or not like? That's the question the National Telecommunications and Information Administration (NTIA), which is the part of the US Commerce Department and is charged with distributing some of the stimulus funding for broadband, asked the Economic Stimulus and Recovery (ESR) office, which has the responsibility for answering such questions in Vermont.

   

The American Recovery and Reinvestment Act (ARRA or "the stimulus bill") requires NTIA to consult with the states. Originally NTIA said it would do a preliminary screen of applications, then give the screened list to the states. When they saw how many applications there were, however, they decided to give the whole unscreened list to the states – which is what we'd asked them to do in the first place. Trouble is we're not sure how much attention they'll pay to our recommendations. They made clear that they would neither accept nor reject an application purely on our say so.

   

Just to make things a little more confusing, we are only asked to look at those applications submitted to NTIA. The stimulus bill also gave money to Rural Utilities Service (RUS, part of the US Agriculture Department) to finance broadband. RUS is coordinating with NTIA and many, but not all, applications were made jointly to RUS and NTIA. However, RUS is not required by the law to consult with the states so it isn't going to do so.

   

Vermont ESR was well positioned to look at the applications since we had coordinated the preparation of a set of applications statewide which could, at best, result in broadband coverage in Vermont expanding to at least 95% of the residences in the state. We recommended those applications when they were initially submitted. However, only four of these coordinated applications were applications to NTIA (two other were RUS only); so we only got to opine on the four (but we snuck in a good word for the RUS applications just in case).  These four applications span the three separate categories in which NTIA plans to fund projects:  Infrastructure (including both last mile and middle mile applications), Sustainable Broadband Adoption, and Public Computing Centers.

   

The four applications which got our highest recommendation because of their importance and synergy were:

1.  A last mile application from local carrier VTel to offer Wireless Broadband to serve unserved areas of southern and central Vermont and to upgrade its existing service in the Springfield area to very modern fiber. (Note: VTel proposes to use newly-available 700 MHz spectrum, which is old UHF TV spectrum now available due to the transition from analog to digital broadcasting.)
2. A last mile application by FairPoint to serve unserved portions of the very rural Northeast Kingdom. Even though FairPoint is having financial and other difficulties, the assets they propose to build are badly needed by the residents and businesses of this area.
3. A sustainable broadband adoption application by The Vermont Council on Rural Development. Their proposal is to help overcome obstacles to broadband adoption in newly-served communities such as lack of training, lack of equipment, lack of money, and lack of relevant local content. Greater adoption obviously means more benefit from any deployment; a higher adoption rate also improves the difficult economic of rural broadband deployment.
4. A public computing center proposal by the Vermont Department of Libraries aimed at assuring that libraries are well-equipped in areas where broadband is not widely available. This both helps mitigate (but doesn't solve) the availability problem and builds a user base for broadband when it does arrive.

   

We recommended two other applications as well: 

1. A middle mile application by TelJet Longhaul, LLC which, if funded, will improve backbone connections to and from Boston and within Vermont and significantly increase bandwidth, redundancy, and wholesale and commercial broadband competition in parts of the state.
2. A sustainable broadband adoption application by Health Care and Rehabilitation Services of Southeastern Vermont, Inc that proposes to use broadband resources to mitigate the chronic shortage of mental health professionals in the area.

Although we like to be positive, we recommended AGAINST many applications including all proposals to use satellite service to provide broadband. Although satellite is better than dialup, it's not good enough to meet the broadband needs of Vermonters and other rural Americans. We don't think Hughes Network Systems and EchoStar should be grabbing off the available grant money to build substandard solutions. Most of the rest of the applications we recommended against were national proposals that claimed to bring benefits to Vermont but didn't substantiate that claim.

   

You can read our full recommendation to NTIA at http://recovery.vermont.gov/broadband#staterecommendation.

How Many Jobs Were Stimulated?

There's going to be a lot of controversy and confusion nationwide on October 30 when stimulus reports from states are made public on recovery.gov. The reported numbers for "jobs created or retained" will be particularly contentious since they will be much lower than the job forecasts by state which used to be posted on recovery.gov (I can't find them in the new and excellent redo of the site) and the total reported by the states won't come close to the total jobs forecast to be created by the stimulus bill (aka American Recovery and Reinvestment Act or ARRA).

Actually, the numbers SHOULDN'T match but that's tough to explain. Nevertheless, in the interest of transparency, I'll try an explanation here.

The original forecasts were made using an econometric model. In English, that means that a bunch of economists decided how a computer should make an estimate of how many direct, indirect, and induced jobs will be created or retained by each dollar of government spending. You'll find all of the details of the methodology at http://www.recovery.gov/Documents/Jobs_Report_Final.pdf.

Direct jobs are the people working directly on a project; think of the crew that you see fixing a bridge. Indirect jobs are the jobs created or retained at suppliers to the project; think of the people who made the steel that goes into the bridge. Induced jobs are the jobs created when people spend the money they earned or received as benefits; think of the people working in the mall where the road crew spends the money they wouldn't have if they didn't have jobs.

The economists go on to estimate that one job can be created for one year by $92,136 of federal government spending, $145,351 of tax cuts, or $116,603 of state fiscal relief (which presumably saves us from either having to cut services or raise taxes at the state level). There is no mention in this paper on current or future job loss caused by the increase in federal debt or the need to pay it back (I'm not opining, just reporting).

OK, now you understand where the projections came from. There's roughly $787 billion allocated by ARRA so the economists just have to divide this into spending, tax cuts, and state tax relief to figure out how many years of jobs will be created or retained. Their answer is 6.8 million job-years through the end of 2012. They estimated 8,000 jobs for Vermont with this methodology. That's a big number since we lost about 10,000 jobs total in the recession.

Let's look at what the states are going to report:

1. We report only the jobs created by the money that flowed to or through the state government – not the tax cuts, not the direct grants to companies, cities, and counties and other recipients. That's "only" $246 billion out of $787 billion total.
2. We report (this time) only on money spent through September 30, 2009. "If you look at the Recovery Act as a two-year marathon, we're at the nine-mile mark," says Vice President Joe Biden.
3. We report only the direct jobs created by that money – the people building the bridge but not the ones who made the steel or sold goods to the crew. In most cases we report prime contractors but not subs. 80% of the money that came into Vermont through mid September was for Medicaid ($105 million). None of this created or retained DIRECT jobs so no jobs are reported for this although we would certainly have been in a pickle without this money and have a huge hole to fill when it's gone.
4. We're not really reporting job-years but rather an estimate of the number of full time equivalents that were hired for the period (usually one quarter this time).

The truth is that we'll never know how many jobs were saved by ARRA; the economy is simply too complex to give us a simple answer. A woman from the Federal Reserve Bank of Boston called our office the other day and asked "If you didn't have the ARRA Medicaid money, would you have raised taxes, cut benefits, or cut somewhere else?" We answered "probably all of the above" but we'll never know in what proportions those three things might have happened or what the effects of them might have been.

We'll report a job number as required by law. When we report it, we'll give even more detail on how we calculated it. You now know why the state numbers won't match the federal estimates.

Even though you should look at both the federal job estimates and the state reports with several grains of salt, the right questions to ask are, I think, "was our money spent well?" and "what are we going to do in a year when most stimulus dollars will have been spent?"